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Refundable And Non Refundable Tax Credits

What is the difference between non-refundable and refundable tax credits?

When filing your tax return, you can apply for various tax credits. Such credits can potentially reduce the amount of taxes you have to pay to the Canada Revenue Agency (CRA).

What are refundable and non-refundable tax credits, and what is the difference between the two?

While both tax credits suppose to help taxpayers, in case of a non-refundable tax credit, you are not going to get any money back from CRA. Still, in the case of a refundable credit, you can get a check back from CRA.

What is a non-refundable tax credit?

During the year, you have your income and your expenses, but not all expenses are the same from the CRA's point of view. Some expenses, for instance, educational, family, disability, can be applied as a non-refundable tax credit toward your tax return, others like groceries can't.

For example, if you bought a new house and moved there, you can use your moving expense as a tax credit, and you do not have to pay taxes from that amount (only if you qualified).

There are various types of different tax credits. Some applied to all taxpayers, and most familiar will be a personal tax credit, which is $12,069 for Ontario residents for the 2019 tax year. Every resident of Ontario does not need to pay taxes from the personal tax credit income.

Some credits can be applied if your income is low. If you have a high salary, you can still apply for such credit, but most likely, you will not be approved.

For non-refundable credits, you can't get money back from CRA. For example, if you spend money on education and buy some books for your college, you can apply for the credit and do not pay taxes from that amount. Still, if you do not go to college, you have nothing to apply for, and you are not going to get any tax benefits, that is why such tax credit called non-refundable. You either do not pay tax from this amount or get nothing.

What is a refundable tax credit?

There is also refundable tax credit, and it is the money you will get from CRA if you are eligible. Compared to a non-refundable credit, you will get something back from CRA if you qualified, that is why before-mentioned tax credits called refundable. Usually, the refund comes in the way of a check, or CRA makes a direct deposit if you provided your bank details in your CRA online account.

What types of refundable tax credits exist in Ontario?

There are two federal tax credits, but some provinces also offer provincial non-refundable tax credits.

The federal tax credits are

  • the Working Income Tax Credit
  • the goods and services tax/harmonized sales tax (GST/HST) credit

If you live in the province of Ontario, the refundable tax credits are:

Still not clear what tax credit you can apply for in your tax return?

Tax credits may be confusing, and most taxpayers do not know how to get all the benefits from various tax credits. If you need help preparing your tax return, our professional tax accountant will help to prepare your tax return and file to CRA. Contact us to get more information and schedule a phone call.

Anna Grigoryan

Anna Grigoryan is an independent public accountant and the founder of Taxory - a small business accounting firm, located in Mississauga, Ontario. Anna provides accounting, bookkeeping and taxation services in Mississauga, Milton, and GTA.

About Taxory

Taxory is a small business accounting firm providing services in Mississauga and GTA. Our accounting services are available in English and Russian.